The rise and fall of income inequality in Latin America

By: Leonardo Gasparini (CEDLAS, Universidad de La Plata)
Nora Lustig (Tulane University and Center for Global Development)


Concluding remarks
The income distributions in Latin American countries went through two distinct phases in the 
last three decades. During the 1980s and 1990s they  became more concentrated. In several 
countries (though not in all) the increase in inequality during this period was associated with 
macroeconomic crises and  market-oriented reforms in a context of weak labor institutions 
and social safety nets.
From the  late 1990s/early 2000s income inequality in Latin America  has  declined.
Two main factors  appear to be behind this phenomenon: a fall in the earnings gap of 
skilled/low-skilled workers and an increase in government transfers targeted to the poor. The 
fall in  the  earnings gap, in turn, is  due to a wide set of factors, including  the  improved 
macroeconomic conditions that fostered employment, the petering out of the one-time 
unequalizing effect  in the labor market  of some market-oriented reforms in the  1990s, the 
expansion of coverage in basic education during the last couple of decades, and stronger 
labor institutions. Probably due to the improved fiscal situation and the increased concern on 
social issues, most Latin American countries  augmented social spending and in particular 
adopted or expanded conditional cash transfers programs. The evidence  suggests that these 
programs are well targeted on the poor, and are thus highly progressive. 
In spite of this undeniable progress, Latin America still remains a region with  very 
high income inequality, in which governments redistribute relatively little through taxes and 
transfers. Despite the evident progress in making public policy more pro-poor, a large share 
of government spending is neutral or regressive, and the collection of personal income and 
wealth taxes is relatively low. In order to continue on the path towards more equitable 
societies, it is crucial that public spending is made more progressive and efforts are redoubled 
to improve access to quality services (education, in particular) for the poor.

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